Bank Downgrades, Personal Debt & Rebooting DeSantis’ Reboot – Top 3 Takeaways – August 9th, 2023
- First the banks, then the country, then the banks again. Given that my mantra is that there are two sides to stories and one side to facts, accuracy in the information I deliver to you is always a paramount concern. In recent months I’d been pleasantly surprised that March’s mini-banking crisis hadn’t seemingly become something more than what it was for just a matter of a few weeks back then. As I mentioned at the onset of it on March 13th, in my top takeaways that day... So that (the collapse of Silicon Valley Bank) takes me to what’s next. Good question. I can’t quantify it. The last time I couldn’t quantify what I was analyzing? March 16th, 2008. Nearly fifteen years ago to the day. What did I say back then? Right here, on WJNO, I said that I didn’t know where this would go, so if you need money for the next few years that you have invested, you should consider moving to the sidelines. Here’s my question for all of us today. What are the odds with 40+ year high inflation, spiking consumer debt levels, barely affordable (or unaffordable) housing prices and rent rates, still rising interest rates which are now the highest since, you guessed it, 2008, and now the 16th largest bank in the country collapsing...that somehow or another this just all works out? I don’t know, which for me is the problem. But I do know history. And about that history as I mentioned on April 28th in my takeaway... The good news in South Florida is that we’re likely to have a far better economy than the country as a whole. Just as in the 2008 banking crisis, which saw Bear Stearns first fail in March, we didn’t have another big bank failure until June. The dominoes don’t all fall at once. The weakest ones fall first, and the other slightly less weak ones lean until eventually toppling over. Be prepared for the banking crisis and economy to get worse before it gets better and be glad we live in South Florida. And that takes us to what happened yesterday. A week after Fitch downgraded the US credit rating...
- Moody’s cut the credit ratings of not one, not two, but ten U.S. banks and placed a host of big name banks on a ratings downgrade watch. Quoting Moody’s in their note which weighed heavily over the financial markets on Tuesday: U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets. Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets. Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024. Some of that is financialese but all of that is understandable. Banks aren’t out of the woods and the economy isn’t out of the woods according to Moody’s. It takes me back to my initial analysis of this situation... What are the odds with 40+ year high inflation, spiking consumer debt levels, barely affordable (or unaffordable) housing prices and rent rates, still rising interest rates which are now the highest since, you guessed it, 2008, and now the 16th largest bank in the country collapsing...that somehow or another this just all works out? All that’s changed since then is that the rate of the rise in inflation has begun to back down with interest rates now at the highest level since 2002...and the Fitch and Moody’s downgrades. I still don’t know where all of this is going, but for a while many people, many investors, seemed to think the odds were that it really would just work out. It could still happen, but Moody’s just told you they don’t think it will. And in related news, we just found out that US credit card balances have now topped a trillion dollars for the first time ever...at the same time we have the highest interest rates in 22 years. And on the same day the Fed said late credit card payments rose to 7.2% - the highest in eleven years (back to where we were as a country when we were exiting the Great Recession). I don’t say any of this to scare you but to prepare you...just in case what’s happening here does turn out to be ugly.
- Rebooting the reboot. When it comes to Governor DeSantis’ presidential campaign two things are certain. He’ll be on the first debate stage in two weeks, and he’ll need a strong performance on it if he’s to truly turn the tide of campaign. DeSantis’ polling performance in the Republican primary process peaked six months ago and his support today is almost exactly half of what it was then. That’s likely why yet another DeSantis staffer got the boot yesterday, amid the recent campaign reboot, which was an aim to focus on his economic plan as opposed to social issues which mostly fell flat on the campaign trail. The most recent DeSantis defection wasn’t just any staffer, it was his top staffer as he removed his presidential campaign manager – opting to keep her on as the campaign’s chief strategist – while moving his gubernatorial Chief of Staff to his top presidential campaign post. It’s an indication that Governor DeSantis’ primary focus appears to be the office he’s currently running for as opposed to the one he currently occupies. His Chief of Staff has been instrumental in key DeSantis policy decisions within the state of Florida – from the banning mask mandates and vaccine passports to the reopening schools during the pandemic to election integrity laws and the new six-week limit on abortions (with exceptions), his top and most effective staffer in Florida is now repositioned in the role of rebooting DeSantis’ presidential campaign reboot.